If you do a job or do your business, then obviously at one time you can also take care of buying a car. According to your choice and budget, a right strategy is necessary to buy a car. The 20/4/10 rule to buy a car is one such strategy, by adopting which you can also bring home. Understanding and implementing the basic rule to buy a car is important to ensure your financial good. By the way, keep in mind an important thing, according to Tata AIG Insurance, the car you want to buy should be the maximum of 50% of your annual income.
What is 20/4/10 Rules
This rule of buying a car is a type of car financeing rule that is a simple but powerful tool that streamlines the decision to buy and ensures financial stability. By following this simple rule, you get the benefit of the flexibility of taking an informative decision and the better understanding of your finance. This rule can identify the best way to use your money to buy a car. 20/4/10 Car Purchase Rules include 3 major components, including a duration of down payment, monthly expenses and loan repayments.
Down Payment: According to the 20/4/10 Rule, 20% of the total purchase price of your selected car should go through down payment. This helps you to reduce the total loan amount required, as well as the loan duration decreases and the monthly payment for the loan is reduced.
Loan repayment duration: The duration of the loan is the period or number of years that you get to repay the total loan in monthly installments as a bank. According to the 20/4/10 Rule, you should not take a loan for more than 4 years for repayment. This reduces interest payment and makes the financial plan better.
Monthly Expenditure: Apart from monthly loan EMI, other car -related payment, such as maintenance, car insurance premium, etc., should be a maximum of 10% of your total monthly income. With this calculation, you make sure that after this payment there is enough money for day to day expenses.
Benefits of buying a car from 20/4/10 rule
A major benefit of using this rule is a decrease in loan amount. According to the 10% monthly expenditure component of this general rule, you also have to take into account various expenses related to the maintenance of the car. This helps you manage and control your car expenses, which helps to keep a better eye on the budget. On purchasing from this rule, you are able to take a better decision regarding your car purchase, which gives you mental peace and reduces stress because you are according to your budget.
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